FOMC Minutes And Why They’re Important

FOMC Minutes are the minutes of meetings from each scheduled meeting of the Federal Open Market Committee. These notes provide details on the Federal Open Market Committee’s discussion on various monetary policy issues. FOMC minutes are released to Congress and the public after each of the eight regular meetings held by the FOMC each year. FOMC minutes are used by investors, economists, and others to gain insight into U.S. economic outlook and monetary policies.

 

FOMC Stock Market Impact

The Federal Open Market Committee or FOMC will affect the stock market when it changes the interest rate, makes decisions regarding the Federal Reserve and Treasury Department, or when it makes other monetary policy changes.

These and other decisions will have a significant impact on borrowing, prices, and economic growth. The stock market’s response to FMOC’s decisions will usually affect the economy much faster than any interest rate change itself.

A Fed Speech And Its Purpose

A Fed speech from an official from the Federal Reserve System Board Of Members is a way of maintaining transparency on national monetary policy. Fed speeches are given on a regular basis, usually by a member of the Fed’s board of governors. Along with other types of public communication, a Fed speech is given several times a month. The content of these speeches will often have an impact on economic forecasts, financial market stability, and public confidence in the current state of the economy.

“Don’t Fight The Fed” Advice

The mantra, “Don’t fight the Fed, advises investors to keep their choices in line with the Board of Governors of the Federal Reserve (the Fed) and the Federal Open Market Committee (FOMC). It’s not far removed from the adage “buy low, sell high” as it encourages investment action that’s consistent with current information coming from the FMOC and FED. For example, if the Fed sets lower interest rates that increase spending, borrowing, and profits, a conservative investor may adjust their portfolio and increase their investments to gain opportunity from this growth.

Conversely, when the Fed increases interest rates to curb inflation and foster stability, an investor may also be more conservative in their investments. While “Don’t fight the Fed” is often quoted and widely adopted by many economic advisors and investors, it doesn’t always account for other factors affecting the economy that cannot always be addressed by the Fed or the FMOC, including geopolitical upsets, changes in trade policy, and other unforeseeable issues or events.

How The Fed May Respond To A Recession

During an economic recession, the Fed may respond in a number of different ways. The main goals of recession monetary policies are to curb unemployment, mitigate economic shocks and bottlenecks, stabilize prices, and retain as much investor confidence as possible.

More specifically, the Fed may respond to a recession by lowering interest rates through the purchase of debt securities on the open market, thereby making it cheaper to borrow money and avoid defaulting on current loans. This can help prevent unemployment rates from rising and also helps consumers regain confidence and make more purchases on credit. Among other actions, the Fed may provide direct loans to banks at discounted rates.

Credit: Gorup de Besanez

What Happens When The Fed Buys Bonds From The Public?

When the Fed buys bonds from the public, it does so to boost economic growth by introducing more cash into the open market and lowering interest rates. Buying bonds is one of the tools that the Fed uses to boost cash flow and encourage growth during economic downturns. When the Fed buys bonds on the open market, prices rise as interest rates decrease. On the inverse, prices decrease and interest rates rise when the Fed sells bonds.

Article Sources:

https://www.bankrate.com
https://www.investopedia.com
https://www.frbsf.org
https://www.thebalance.com
https://www.investopedia.com
https://www.nytimes.com

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